Study: New Ranking Finds U.S. Cars Lacking in Resale Value

TRAVERSE CITY, MI, Ed garsten writing for the AP reported that U.S. carmakers fared poorly Tuesday in a first-ever ranking of auto resale values, with European and Japanese brands expected to keep more of their worth as used cars.

An incentives war being waged by the U.S. car dealers may be contributing to the problem, although the study by the Automotive Lease Guide also took other important factors such as quality and past performance into account.

It was the first time the Automotive Lease Guide, which is the industry's main authority on resale values, made public a ranking of brands' expected future worth. Most U.S. brands came in below average; the exceptions were Jeep, produced by the Chrysler Group of DaimlerChrysler AG and GMC, by General Motors Corp.

Volkswagen of America Inc. was found to be the brand that would best hold what's known as residual value over the next three years. The study predicts Volkswagens will retain 52.2 percent of their worth after three years.

The Volkswagen Passat was ranked best in the midsize car category.

Automotive Lease Guide president Raj Sundaram said laying on incentives erodes residual values because they make the cars worth less when they're purchased new. When a new vehicle costs less, its value erodes at a quicker rate.

"Residuals have been coming down for awhile, but now there are more problems as the automakers play games on the new car side," Sundaram said.

U.S. automakers have been offering some type of incentive for many years, but the latest battle began in September with GM's "Keep America Rolling" no-interest financing promotion. Ford Motor Co. and Chrysler followed, leading to a torrid sales pace at the end of the year that boosted 2001 to the second-best sales year in history.

The automakers knew the incentives narrowed profit margins, but feared a retreat would drive away customers who had become accustomed to the come-ons.

The Automotive Lease Guide awarded Toyota Motor Sales U.S.A. top rankings in three categories: the Tacoma for the compact truck segment; Sequoia for the full-size SUV segment; and the Tundra for the full-size truck segment. All three are repeat segment leaders from last year.

Among non-luxury brands falling below the average of 41.8 percent residual value were: Buick, Chevrolet, Chrysler, Daewoo, Dodge, Ford, Hyundai, Isuzu, Kia, Mazda, Mercury, Mitsubishi, Oldsmobile, Pontiac, Saturn and Suzuki.

Automotive Lease Group did not give the specific rank of below-average brands. Sundaram said the lowest percentage for a non-luxury brand, which he did not identify, was 29.5 percent.

Among luxury brands, Mercedes-Benz vehicles were best, with an expectation they will retain 54.5 percent of their original value after three years. Its CLK was top-rated in the luxury segment.

Luxury brands falling below the average of about 49 percent were: Cadillac, Infiniti, Jaguar, Lincoln, Saab and Volvo.

The top numbers cruncher for GM said it's unfair to place too much blame on incentives for the downward direction of residual prices.

"It also involves what units you have in fleet, your strength in products, strength in brands, and strength in leasing," said Paul Ballew, GM's executive director of market research and analysis.

Ballew said he expects GM's rankings to rise as it makes progress on improving quality and product mix, and as it reduces an emphasis on sales to rental car companies. Too many rental car sales can depress residual values because of a glut in the used car market when the agencies replace them and sell them at auction.